Promise of early leap goes unfulfilled

London's leading shares continued to rally yesterday but early hopes of another bumper rise petered out by the close of trading.

The FTSE 100 index of top shares closed up 3.2% or 137.3 points at 4394.2, a relatively modest follow-up to Monday's 325-point leap back from the abyss. The blue-chip index had climbed as high as 4534.4, up 277.5 points, which would have represented its fourth-biggest one-day climb.

A record gain in Japan's Nikkei average overnight and the Dow Jones industrial average's record points increase had propelled the FTSE 100 higher in the first hours of trading. But a lukewarm opening on the Dow helped to take the shine off the early gains in London.

Britain's banks experienced diverging fortunes as the market continued to weigh up the government's radical measures to shore up their funding.

Barclays, which has eschewed direct investment from the government, was the FTSE 100's biggest percentage gainer, up 30.75p, more than 14%, to 246p. But the three banks that have agreed to the government buying shares in them - Royal Bank of Scotland, Lloyds TSB and HBOS - all saw their shares drop in price.

RBS shares closed down 0.7p at 65p, just below the 65.5p at which the government is to buy shares in a £15bn placing. Shares in merger partners Lloyds TSB and HBOS were the FTSE 100's biggest fallers, as they slid further below the government's agreed purchase price for new shares. Lloyds closed down 6.6% or 10.7p to 151.3p - compared with the 173.3p at which the government is to buy - and HBOS fell 5.2% or 4.7p to 85.3p, well adrift of the government's price of 113.6p.

This discount raises the prospect that no other investors will want to take part in the share issue, leaving the government with the entirety of its potential 43.5% stake in the combined Lloyds-HBOS.

There were mixed fortunes too in the mining sector. Vedanta Resources was up 8% or 68.5p at 900.5p, after reporting its highest production volumes of aluminium, zinc and iron ore in the six months to end-September. But Xstrata fell 65p to £13.16 on concerns about weakening metals prices.

Synergy Health plunged 38% after it warned that operating margins in the half-year would be 1% lower than previously suggested. The healthcare group closed down 262p at 429p, easily the biggest percentage faller in the FTSE 250, despite adding that it was confident full-year sales would meet expectations.